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The article is thinking about mining in the wrong way. Mining is the reason that the price of bitcoin didn't collapse over the last few bear cycles. The raw ene

by jmole 5y ago

The article is thinking about mining in the wrong way. Mining is the reason that the price of bitcoin didn't collapse over the last few bear cycles. The raw energy cost to mine bitcoin (coupled with investor FOMO & buy-the-dip mentality) sets a price floor that's hard to overcome because it's tied to physical assets and production. Once you have a mining farm, it takes nothing but electricity to keep it going, & electricity is cheap.

Tenoke 5y ago
I don't see how it creates a price floor. The profits from mining are tied to the price but not vice versa. If the price drops there's no mining-related mechanism to increase it and buyers and sellers have no reason to care or be affected by how profitable mining is or what the hashrate is.
- bdcravens 5y ago
  There is a price floor, but it's much, much lower than most people realize. They need only turn a profit to keep their miners on. Over the long term the mining difficulty does shift, which presumably would attract more miners (and vice versa) that would affect the elasticity. However, that's not the creation of a price floor that Bitcoin advocates claim.
  - ALittleLight 5y ago
    That's not a price floor though. A price floor would be some reason Bitcoin wouldn't go below a specific price. If Bitcoin falls below the price you can profitably mine it that means people will stop mining it, it doesn't mean that anyone will buy more Bitcoin and support the price.
    - megameter 5y ago
      The actual supply coming into the market remains the same while the mining difficulty shifts according to network hashrate(determined by the time between new blocks), hence assuming demand for Bitcoin is static, there is an equilibration mechanism creating a break-even price floor. Bitcoin's price appreciation has demonstrated that demand can be sustained through multiple market cycles, and nothing in particular has changed that assessment. Bigger worries for Bitcoiners stem from centralization of hash power, and whether transaction fees alone will sustain the network as it exits the inflationary period.

by jmole 5y ago

Tenoke 5y ago

I don't see how it creates a price floor. The profits from mining are tied to the price but not vice versa. If the price drops there's no mining-related mechanism to increase it and buyers and sellers have no reason to care or be affected by how profitable mining is or what the hashrate is.

bdcravens 5y ago
There is a price floor, but it's much, much lower than most people realize. They need only turn a profit to keep their miners on. Over the long term the mining difficulty does shift, which presumably would attract more miners (and vice versa) that would affect the elasticity. However, that's not the creation of a price floor that Bitcoin advocates claim.
- ALittleLight 5y ago
  That's not a price floor though. A price floor would be some reason Bitcoin wouldn't go below a specific price. If Bitcoin falls below the price you can profitably mine it that means people will stop mining it, it doesn't mean that anyone will buy more Bitcoin and support the price.
  - megameter 5y ago
    The actual supply coming into the market remains the same while the mining difficulty shifts according to network hashrate(determined by the time between new blocks), hence assuming demand for Bitcoin is static, there is an equilibration mechanism creating a break-even price floor. Bitcoin's price appreciation has demonstrated that demand can be sustained through multiple market cycles, and nothing in particular has changed that assessment. Bigger worries for Bitcoiners stem from centralization of hash power, and whether transaction fees alone will sustain the network as it exits the inflationary period.